The plan is still essentially based on the 'three buckets' strategy first outlined in Theresa May's last big Brexit outing in September
The plan is still essentially based on the 'three buckets' strategy first outlined in Theresa May's last big Brexit outing in September © FT Montage/Dreamstime

Theresa May surprised many when she persuaded her divided cabinet to unite over Brexit on Thursday night — but signing off a plan, over lemon tart and raspberry sorbet in a 16th century manor, is already starting to look like the easy part.

By Friday, Mrs May’s cabinet compromise, agreed at her Chequers country retreat, was being torn apart in Brussels, where EU diplomats believe it is not a workable basis on which to start a negotiation, let alone a viable model.

“The cabinet is not negotiating with itself,” said Peter Mandelson, former EU trade commissioner. “It is negotiating with the EU and this plan will soon hit reality.”

Throughout the Brexit debate, British politicians have stumbled over the vexed question of how to secure maximum access to the EU’s single market without remaining under its legal jurisdiction or paying into its budget.

Mrs May is vowing to cut through this with a policy her aides call “managed divergence”.

The idea is that some British industries, such as aviation and pharmaceuticals, will remain under EU rules while others will gradually set their own — while pledging to maintain high standards similar to those on the continent. The approach has succeeded in its short-term objective of bringing together an ideologically opposed cabinet.

But Leo Varadkar, Irish prime minister, spoke for many at a summit of EU27 leaders in claiming that Mrs May had only kept the peace at Chequers by offering another variant on a “have cake and eat it” strategy.

“It is not à la carte,” Mr Varadkar said. “It is not possible for the UK to be aligned to EU when it suits and not when it doesn’t. The UK needs to square that circle. It doesn’t appear that the circle has yet been squared.”

Donald Tusk, the president of the European Council, added: “If the media reports are correct, I am afraid that the UK position on the debate is based on pure illusion.”

And a senior Brussels official said that Mrs May still wanted a “bespoke” deal that simply was not compatible with EU structures: “There is a binary choice: a free-trade agreement or the single market.”

The official was referring to two existing options on the menu. One is a variation of the trade deal the EU recently completed with Canada. It would preserve Britain’s national autonomy, but with limited access.

Then there is Norway’s arrangement with the EU, which offers greater access — but at the cost of submitting to European court rulings, paying into the EU budget and allowing free movement. All are things that staunch Eurosceptics oppose.

The prime minister will set out more details of her approach in a speech next Friday, but it is still essentially based on a strategy known as the “three buckets” that was first outlined in her previous big Brexit outing in Florence last September.

Mrs May was advised by Mark Rutte, Dutch prime minister, in Downing Street this week that the strategy would not work in Brussels, and EU diplomats say he now wonders why he bothered.

In the first bucket, Mrs May wants to put parts of the economy which are intimately linked to the EU, including those with complex supply chains like car manufacturers or are heavily regulated like chemicals or medicines.

Here, Britain would accept EU regulations and a role for EU agencies and the European Court of Justice, a significant blurring of Mrs May’s previous red line that judges in Luxembourg would play no future role in British life.

Health secretary Jeremy Hunt said that Britain would play by Brussels’ rules for as long as it suited the British economy: “It will be on a voluntary basis: we will as a sovereign power have the right to choose to diverge.”

In the second bucket would be other goods and services, including data and financial services, where Britain would agree common regulatory goals but would have some flexibility to set its own rules.

A system of mutual recognition of each other’s rules and regulators and a dispute resolution mechanism would be created to ensure a level playing field.

Britain would underpin this “special partnership” by promising to abide by high European standards in areas such as labour protection, environmental rules, consumer law, and a rigorous state aid and competition framework.

Finally, a third bucket would include areas where there is little or no European law, in frontier technology such as robotics or driverless cars.

Although all of this is seen in Brussels as an unworkable “pick-and-mix” approach that could not fit into the EU’s single market legal structures, EU and British diplomats have agreed not to have a row about it for now.

They want to firstly get through the next EU summit on March 22-23, when Mrs May hopes to agree a two-year transition period, extending beyond the official Brexit date of March 29 2019.

Mrs May hopes to secure that transition by backing down on her previous suggestion that EU citizens arriving in Britain after March 2019 would not enjoy the right to remain, a position rejected outright by the EU.

As a face-saver, one option for Mrs May is to argue that those arriving in the transition period would only enjoy the rights of UK nationals, thus losing family reunion rights.

London and Brussels also have to agree a legal text putting into effect the fudge agreed in December on the Irish border, including a requirement for Britain to align regulations with the EU if it cannot find another way to keep the border open.

But Lord Ricketts, former head of the Foreign Office, added to the sense of foreboding over the looming Brexit trade talks when he tweeted of the Chequers plan: “Will it survive first contact with the EU? To them it will methinks look like cake and eat it, just with a different icing.”

Additional reporting by Jim Pickard and Mehreen Khan

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